Martin Marietta Materials Inc (MLM) — Q2 2020 Earnings Call Transcript

Good morning, and thank you for joining Martin Marietta's Second Quarter 2020 Earnings Call. With me today are Ward Nye, Chairman and Chief Executive Officer; and Jim Nickolas, Senior Vice President and Chief Financial Officer. As a reminder today’s discussion may include forward-looking statements as defined by United States securities laws in connection with future events, future operating results or financial performance. Like other businesses, we are subject to risks and uncertainties that could cause actual results to differ materially. Except as legally required, we undertake no obligation to publicly update or revise any forward-looking statements, whether resulting from new information, future developments or otherwise. Please refer to the legal disclaimers contained in today’s earnings release and other filings with the Securities and Exchange Commission, which are available on both our own and the SEC websites. We have made available during this webcast and on the Investor Relations section of our website, Q2 2020 supplemental information that summarizes our financial results and trends. In addition, any non-GAAP measures discussed today are defined and reconciled to the most directly comparable GAAP measure in our earnings release and SEC filings. Today’s earnings call will begin with Ward Nye, whose remarks will focus on second quarter operating performance as well as current and emerging market trends. Jim Nickolas will then review our financial results and liquidity position, and Ward will then provide some closing comments. A question-and-answer session will follow our prepared remarks. I will now turn the call over to Ward.

Thank you, Suzanne, and thank you all for joining today’s teleconference. We sincerely hope that you and your families are remaining safe and healthy as we continue to manage through these unprecedented times... Martin Marietta established few profitability records for both the second quarter and the first half of the year driven by favorable pricing and proactive cost management across the building materials business, for the second quarter specifically consolidated gross margin expanded 200 basis points despite slightly lower revenues as compared with the prior year period... Throughout the quarter, we saw attractive and consistent pricing strength in our North and Central Texas cement operations. Specifically, cement prices in Dallas and San Antonio, the markets most proximate to our Midlothian and Hunter facilities were up 4%... Moving forward, we are confident in Martin Marietta's opportunities to build on our successful track record of financial and operational outperformance.

Thank you, Ward, and good morning to everyone. It is worth highlighting that the enterprise achieved a second quarter adjusted EBITDA margin of 32%. This is the highest EBITDA margin in the company’s history. The driving force behind this accomplishment was the building materials, which achieved record second quarter products and service revenues of $1.1 billion, a 1% increase from the prior year quarter and gross profit of $359 million a 9% increase... Capital expenditures are now expected in a range of $350 million to $375 million... We are confident in our balance sheet strengths, we have ample liquidity and financial flexibility to continue possibly growing our business.

Thanks, Jim, with the successful completion of an outstanding first half of 2020, we remain laser focused on managing our business through the macroeconomic upheaval from COVID-19... We expect pricing resiliency and disciplined cost management to continue supporting the company’s near-term performance... We believe favorable pricing trends for our products will continue supported by disciplined locally driven pricing strategy and attractive geographic footprint.

Hey good morning everyone.

Good morning Trey.

Okay. So I guess first I want to focus on margins. I guess demand is going to be what it is going to be... But can you talk about kind of the puts and takes there and we understand, diesel was your friend in the quarter, but you know, even outside of diesel where maybe you had some good guys that we could see continue going forward?

Trey thanks for the question. You are right diesel was the friend, but we managed our labor... So to your point volume is going to be, where the volume is going to be, and volume was down 4% for the quarter, but we saw profitability going nicely up... We have a depleting resource. We want to make sure we are getting good value for it.

Got it. Okay. That is helpful and encouraging, especially in the face of the volume that you are facing... So just trying to understand, you know, maybe high level timing and I'm understanding you are not giving exact guidance... How you rank your outlook for those and where you see some potential or for relative strength or weakness.

Sure Trey, happy to try to do that. And I'm with you... I think res is going to be up, I think res could be up relatively nicely in a number of markets... Heavy non-res is likely to perform relatively well. What do I mean by that? What are we seeing more warehousing in data centers in the works?

Hi thank you for taking my questions today... If you could for listeners really filter the noise in terms of what T&I committee in the house presented versus EPW and the senate and what that could mean... And really kind of a scenario analysis of what really happens to infrastructure volumes, if something happened and if something doesn't happen?

Kathryn thanks for the questions. So really, we are going to look at that in two different buckets... I think normal should be expected flat for some period of time, as they work toward... I don't think that happens before September 30th.

Good morning. Just following up on pricing or do you discuss 2020 ags pricing up 34%... And just wondering if those were purely a function of slack demand or maybe some increased competitive intensity or if there is any kind of other color you can get there.

Yes, I guess I would say several things... We have certainly done that before in cement. But again, we very have a value over volume philosophy that we bring to this.

Well, really nice quarter. And, I'm just wondering, can you just expand on the discussion of what went right this quarter... And I'm just wondering, can you just provide a little bit more context on the drivers of the sequential improvement?

Now, I'm happy to try to do that. Look obviously, energy was a piece of that. It wasn't everything, but it was a nice piece of it... The other thing that I will say relative to efficiencies is we have been very careful with how we have looked at capital allocation and CapEx over the last several years.

Sure I can and If we think about asphalt and paving Jerry, the nice thing from our perspective is the only question we have that businesses in Colorado... We have actually seen bidding opportunities accelerated in an outpacing here in June, after a slow first half relative to bidding activity. The fact is we are a Southeast, Southwest driven business, we are not in downtown Chicago, we are not in downtown Manhattan... But part of what has been interesting to me as we have operated all the way through this as an essential business and our nearly 9000 employee count...

Howard congratulations on a strong quarter... The mid-40s for the infrastructure and 30% non-res and so on. I guess the question is, I guess that type of a proportional mix right now, what would be the variance from that 35.5 gross margin this quarter?

You know what, I don't think you would see a big movement in that particularly David... So if we see single family housing moving in a more normalized fashion and we think we will - we think that is going to be a pretty attractive price. That is nothing to be alarmed by the way. I don't think they are going to issue a longer term continuing resolutions, because they think it is going to last for a long time... And again, the AASHTO asked there is around $30 billion.